NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance
An investor invests Rs 10,000 every month through a SIP. Which measure is most appropriate to compute the annualised return on such irregular or periodic cash flows?
XIRR is the most appropriate measure for SIP returns because it takes into account the exact dates and sizes of every instalment and redemption, producing an annualised return that reflects the timing of each cash flow.
- AAbsolute return
- BSimple average of monthly NAVs
- CXIRRCorrect
- DDividend yield
Explanation
XIRR accounts for the exact dates and amounts of each cash flow, so it suits SIPs and other multiple investments. Absolute return ignores timing, and a simple NAV average does not measure the investor's return. Dividend yield measures only income, not total return.
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